30% of Buyers Denied, Give Up Getting Mortgage

Credit has gotten tighter, and more buyers are being left out or becoming so frustrated they’re giving up. More than 2 million people were turned down for mortgages last year, according to the Federal Financial Institutions Examination Council. About 30 percent of buyers are either denied a mortgage or drop out of the application process, the Mortgage Bankers Association estimates, with stringent lender requirements or incomplete applications most at blame. The New York Times notes some of the biggest reasons for rejection are buyers coming with insufficient income, bad credit (applicants with FICO scores below 620 are usually rejected, although some lenders are rejecting anyone below 660); and low appraisals. What’s more, lenders usually want a two-year history of income so applicants who have changed jobs recently may face hurdles. “It’s common to get turned down if you have a gap in employment history over the last two years,” Erin Lantz, the director of the Zillow Mortgage Marketplace, told The New York Times. Source: “Triggers for Rejection,” The New York Times (Oct. 6, 2011)

30-Year Mortgage Rates Drop Below 4%

For the first time ever, 30-year fixed-rate mortgages fell below 4 percent, Freddie Mac reported in its weekly mortgage market survey. In the last month mortgage rates have continued to set new weekly record lows, but the 30-year mortgages’ latest drop below 4 percent may be an important threshold for potential buyers. The 30-year mortgage is the most popular financing option of buyers. Mortgage rates are expected to stay well-below 5 percent through 2013, Fannie Mae economists are projecting. Home buyers taking out loans for purchase is expected to more than double in the next two years too, Inman News reports. Rates have continued to free-fall as concerns over a global recession grows, Frank Nothaft, Freddie Mac’s chief economist, said in a statement. Here’s a closer look at rates for the week ending Oct. 6. 30-year fixed-rate mortgages: averaged 3.94 percent this week, down from last week’s previous record low of 4.01 percent. A year ago at this time, the 30-year fixed-rate mortgage averaged 4.27 percent. 15-year fixed-rate mortgages: averaged 3.26 percent, another all-time low. This is the sixth-consecutive week the 15-year mortgage has posted new average record lows. Last week, 15-year rates averaged 3.28 percent. Last year at this time, 15-year rates averaged 3.72 percent. 5-year adjustable-rate mortgages: averaged 2.96 percent this week, dropping from last week’s 3.02 percent. A year ago, the 5-year ARM averaged 3.47 percent. 1-year ARMs: averaged 2.95 percent, the only mortgage rate to move up last week. Last week, the 1-year ARM averaged 2.83 percent. A year ago, the 1-year ARM averaged 3.40 percent. By Melissa Dittmann Tracey, REALTOR® Magazine Daily News

23 Housing Markets Show Big Improvement

Double the number of housing markets moved into the “improving” category this month compared to last month, according to the National Association of Home Builders/First American Improving Markets Index, which debuted last month. Twenty-three housing markets qualified as “improving” compared to 12 last month. Metro areas are considered “improving” if they show an improvement in housing permits, employment, and housing prices for at least six months. Texas cities appear the most frequently on the list. "Both the number and geographic diversity of improving housing markets expanded this month, with Iowa, Illinois, and South Carolina all newly represented by one entry or more on the list," Bob Nielsen, NAHB chairman, said in a statement. "This is further evidence that, despite the tough conditions that persist in many cities, pockets of improvement are emerging in local housing markets across the country." The following are the 23 markets labeled “improving” in October, according to NAHB’s index: Alexandria, La. Amarillo, Texas Anchorage, Alaska Bismarck, N.D. Casper, Wyo. Fairbanks, Ark. Fayetteville, N.C. Houma, La. Iowa City, Iowa Jonesboro, Ark. Kankakee, Ill. McAllen, Texas Midland, Texas New Orleans, La. Odessa, Texas Pine Bluff, Ark. Pittsburgh, Pa. Sherman, Texas Sumter, S.C. Waco, Texas Waterloo, Iowa Wichita Falls, Texas Winston-Salem, N.C. By Melissa Dittmann Tracey, REALTOR® Magazine Daily News

U.S. Economy Adds 103K Jobs in September

The nation’s unemployment rate held at 9.1 percent during the month of September, as employers added a net of 103,000 new jobs to their payrolls, according to figures released Friday by the U.S. Department of Labor. Since April, the rate has held in a narrow range from 9.0 to 9.2 percent. Government data shows that there are 14 million people out of work in the United States. The increase in employment last month partially reflected the return of about 45,000 telecommunications workers who had been on strike in August. Without that gain, the payroll increase would have fallen in line with analysts’ expectations. Most were forecasting new job growth to come in at about 60,000. The Labor Department’s report also painted a better picture of the employment situation for the previous two months. Officials revised August’s disappointing reading of no net job gain to reflect 57,000 new jobs during the month. July’s figures were also revised upward from 85,000 to 127,000 in job growth. President Obama spent the week traveling to strategic cities across the country promoting his American Jobs Act. Economists at Freddie Mac have said the president’s proposal could add as many as 1.3 million jobs to the economy, but his adversaries in Congress say they won’t sign on to the bill’s tax hike on the wealthy or to additional spending with the country’s debt level so high. Obama has been on the attack, calling out the bill’s naysayers by name in speeches before constituents in their hometowns. “I want an explanation as to why we shouldn’t be doing it, people really need help right now,” Obama said in a press conference Thursday morning. “[W]e’re not going to bring up the president’s bill in whole, because we don’t believe in raising taxes and in more stimulus spending. But we are going to take the parts that we agree on,” House Majority Leader Eric Cantor (R-Virginia) said on the House floor Thursday afternoon following Obama’s appeal. Of the 14 million people out of work, the Labor Department says nearly half have been unemployed for more than six months, and a third have been without a job for more than a year. Economists and housing analysts warn that job loss – long-term unemployment especially – is now the biggest driver of mortgage defaults. (Be sure to check out DSNews.com’s earlier coverage of housing programs in place to assist the unemployed and their results thus far.)

Thirty-Year Mortgage Rate Falls Below 4%

The average rate for the conventional 30-year fixed mortgage has dropped below the 4 percent mark for the first time in history, according to numbers released Thursday by Freddie Mac. The GSE’s market analysis also shows that the 15-year fixed rate – which has become a popular refinancing option among existing homeowners – fell to its lowest level on record for the sixth consecutive week. Freddie Mac’s regular weekly survey of mortgage rates is based on data collected from about 125 lenders across the country. The GSE puts the average rate for a 30-year fixed mortgage at 3.94 percent (0.8 point) for the week ending October 6, 2011. That’s down 7 basis points from its average of 4.01 percent last week. As a point of comparison, last year at this time, the 30-year rate was 4.27 percent. The 15-year fixed-rate mortgage came in at 3.26 percent (0.8 point) this week, dropping 2 basis points from 3.28 percent last week. A year ago at this time, the 15-year rate was averaging 3.72 percent. Frank Nothaft, Freddie Mac’s chief economist, attributed the decline in fixed mortgage rates to a sharp drop in 10-year Treasuries earlier in the week as concerns over a global recession grew. Adjustable-rate mortgages (ARMs) were mixed this week in Freddie’s study. The 5-year ARM dropped from 3.02 percent to 2.96 percent (0.6 point), while the 1-year ARM rose from 2.83 percent to 2.95 percent (0.5 point). At this time last year, the 5-year ARM was averaging 3.47 percent, and the 1-year ARM was 3.40 percent. Nothaft tied the rise for 1-year ARMs to shorter-term Treasuries, noting that the Federal Reserve began replacing $400 billion in short-term Treasury securities with longer-term bonds this week.

Price Declines Take a Bigger Piece of Prime Borrowers' Equity

The analysts at Fitch Ratings warn that before the housing market pulls out of this downturn, half of prime borrowers could find themselves underwater on their mortgage. Data released last month by CoreLogic shows that one in five of all residential mortgages in the U.S. is in a negative equity position. But segment out just those homeowners with prime mortgages, and Fitch says one in three currently owe more on their mortgage than the home is worth. Fitch took into account all prime borrowers in private-label residential mortgage-backed securities (RMBS). “The sputtering U.S. housing market will result in more prime borrowers being pushed further underwater on their mortgages,” Fitch said in a report released this week. Despite some recent modest gains, home prices have further to fall before any sustained recovery takes hold, according to Grant Bailey, a managing director at Fitch. “With home prices likely to decline another 10 percent, roughly half of prime borrowers will wind up underwater on their mortgage,” said Bailey. Looking at the entire mortgage borrower population, the analysts at Deloitte cite data from JPMorgan Chase which indicates that a further drop in housing prices of 5-10 percent – as expected by the end of 2011 – would increase the number of properties with negative equity to 15-20 million. CoreLogic’s latest assessment put the number of underwater borrowers at 10.9 million at the end of the second quarter of this year. On top of the unsettling negative equity positions of prime borrowers, Fitch’s study also revealed that over 12 percent of all prime borrowers are seriously delinquent on their mortgages. “Prime mortgage default rates will stay elevated as home prices fall further and unemployment remains high,” according to Bailey. Fitch has cited borrower equity as the pre-eminent driver of mortgage default performance in its new rating model. The combination of declining equity, rising delinquencies, the growing risk of payment shock, and the application of Fitch’s updated criteria led to further negative rating actions on prime RMBS transactions in the agency’s latest ratings review. Forty-two percent of prime RMBS ratings, primarily those already rated ‘B’ or below, were downgraded further by Fitch

Fed Governor Calls for Revised Incentives for Servicers

The current compensation structure for servicers provides misaligned incentives and needs revision so servicers’ incentives will align with borrowers and investors, stated Federal Reserve Governor Sarah Bloom Raskin addressing an audience at the Maryland State Bar Association Advanced Real Property Institute in Columbia Maryland Tuesday. “[I]t is imperative to reconsider the compensation structure so that servicers have adequate incentives to perform payment processing efficiently on performing mortgages, and to perform effective loss mitigation on delinquent loans,” Raskin stated. Raskin also believes investors need methods to allow them to monitor servicer performance. She noted that “house prices have fallen by nearly one-third since their peak in the first quarter of 2006, and total homeowners’ equity in the United States has shrunk by more than one-half-a loss of more than $7 trillion.” In addition, as of the second quarter of this year, 3 million families were paying above-market interest rates and are unable to refinance to today’s lower rates, and 4 percent of mortgages were undergoing foreclosure. Servicing delinquent loans is costly for servicers, who were not built to withstand such high rates of delinquencies. Generally, servicers receive one-fourth to one-half of the unpaid loan balance annually for servicing a loan. While this fee is more than enough to cover the cost of covering performing loans, it is far less than the cost of servicing a delinquent loan. “When mortgage delinquencies are high, mortgage servicing is not profitable, and servicers may feel extra pressure to cut costs as much as possible,” Raskin explained. “We need to consider our current array of mortgage contracts with a dispassionate eye and open mind,” Raskin stated.